Full Judgment Text
$~59 to 64
* IN THE HIGH COURT OF DELHI AT NEW DELHI
nd
Decided on: 22 January, 2015
+ ITA 441/2013
+ ITA 444/2013
+ ITA 445/2013
+ ITA 446/2013
+ ITA 452/2013
+ ITA 461/2013
COMMISSIONER OF INCOME TAX (C)-II ..... Appellant
Through Mr. N P Sahni, Sr. Standing Counsel
with Mr. Nitin Gulati and Mr. Judy
James, Jr. Standing Counsel
versus
MICRA INDIA PVT LTD ..... Respondent
Through Mr. Salil Kapoor and Mr. Vikas Jain,
Advs.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.K.GAUBA
MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT)
%
1. The present appeals of the revenue are directed against common order
of the Income Tax Appellate Tribunal (hereinafter, “ITAT”) dated 21.9.2012
passed in ITA Nos. 1060-1065/Del./2012. The question of law sought to be
urged by the revenue is whether in the facts and circumstances of the case,
the notice issued under Section 153C/143(3) of the Income Tax Act, 1961
ITA 441/2013 & connected matters Page 1
(hereinafter, “the Act”) to M/s Micra India Pvt. Ltd. was binding and could
have been proceeded with further.
2. The facts necessary to decide the case are that the original assessee,
M/s Micra India Pvt. Ltd., was assessed in the regular course of its business
for assessment years 2003-04 through 2008-09. Proceedings under Section
391 of the Companies Act were initiated to amalgamate the said assessee
(M/s Micra India Pvt. Ltd.) with M/s Dynamic Buildmart (P) Ltd.
(hereinafter referred to as “transferee”). The order sanctioning the
amalgamation scheme was made by this Court on 22.12.2009; in its terms
the appointed date was 01.04.2008. In other words, the amalgamation was
w.e.f. 01.04.2008. In terms of the sanctioned scheme, the liabilities of the
transferor company, i.e. the original assessee M/s Micra India Pvt. Ltd.,
were to be taken over and discharged by the transferee. For the subsequent
period, i.e. 2009-10 and 2010-11, comprehensive returns were filed by
transferee-company at the relevant time. Accordingly, the fact of
amalgamation was communicated to the revenue on 06.05.2010. While so,
on 08.09.2010, the revenue issued notice under Section 153C to M/s Micra
India Pvt. Ltd. (which had ceased to exist by then) on the basis of a search
conducted in the premises of some other parties (including M/s Madhusudan
Buildcon Pvt. Ltd. and M/s Mayank Traders Pvt. Ltd.) on 20.10.2008. In
response to the notice under Section 153C, the assessee in its return filed on
02.11.2010 contended that the proceedings were illegal, bad in law and
without jurisdiction. Subsequently, the assessee in its response dated
22.11.2010 to the AO’s questionnaire stated that, inter alia , the assessee had
ceased to exist on account of the dissolution consequent upon amalgamation
ITA 441/2013 & connected matters Page 2
sanctioned by this Court on 22.12.2009 w.e.f 1.4.2008. The AO, however,
completed the assessment in respect of the transferor company. The
assessee’s contention that the order was invalid ultimately prevailed with the
ITAT, which held that since the assessee had amalgamated with the
transferee company, notice ought to have been sent to the latter, and since
such notice had not been issued to the transferee company, the entire
proceedings were a nullity.
3. It is urged on behalf of the revenue that the ITAT fell into error in not
noticing that the assessee, at the initial stages of the proceedings before the
assessing officer, did not object to the proceedings and did not rely upon the
amalgamation. It was contended that in these circumstances, the ITAT
should not have interfered with and quashed the assessment. Counsel for the
revenue argued that after receiving the notice under Section 153C, the
assessee participated in the proceedings. The AO, in fact took note of the
change resultant from the amalgamation and reflected that in the assessment
order. The revenue further argues that having participated in the assessment
proceedings, it is not open to the assessee to contest their validity; it relies
upon Section 292B of the Act in support of this contention.
4. Learned counsel for the assessee argued that the proceedings against
M/s Micra India Pvt. Ltd. abated with its dissolution, consequent upon its
amalgamation with the transferee company. This event was notified well in
advance by the transferee company, which had even reflected the income
and other related matters of the transferor company for the relevant period.
Even after receipt of notice under Section 153C, the transferee company
intimated about amalgamation. Yet the final assessment order of the AO was
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in respect of a company which did not exist on the date of the assessment. It
was, therefore, urged that the impugned order of the ITAT should be left
undisturbed.
5. Counsel for the assessee relies upon the decision of the Supreme Court in
Saraswati Industrial Syndicate v. CIT , 1990 Supp. 1 SCR 332 and two
rulings of this Court : Spice Entertainment Ltd v. CIT (ITA 475/2011;
reported in 2012 (280) ELT 43) and CIT v. Vivid Marketing Servicing Pvt.
Ltd. (ITA 273/2009). In Spice Entertainment (supra) this Court held as
follows:
“9. The Court referred to its earlier judgment in General Radio
and Appliances Co. Ltd. Vs. M.A. Khader (1986) 60 Comp
Case 1013. In view of the aforesaid clinching position in law, it
is difficult to digest the circuitous route adopted by the
Tribunal holding that the assessment was in fact in the name of
amalgamated company and there was only a procedural defect.
10. Section 481 of the Companies Act provides for dissolution
of the company. The Company Judge in the High Court can
order dissolution of a company on the grounds stated therein.
The effect of the dissolution is that the company no more
survives. The dissolution puts an end to the existence of the
company. It is held in M.H. Smith (Plant Hire) Ltd. Vs. D.L.
Mainwaring (T/A Inshore), 1986 BCLC 342 (CA) that “once a
company is dissolved it becomes a non-existent party and
therefore no action can be brought in its name. Thus an
insurance company which was subrogated to the rights of
another insured company was held not to be entitled to
maintain an action in the name of the company after the latter
had been dissolved”
XXX XXX XXX
15. Likewise, in the case of Sri Nath Suresh Chand Ram Naresh
Vs. CIT (2006) 280 ITR 396, the Allahabad High Court held
ITA 441/2013 & connected matters Page 4
that the issue of notice under Section 148 of the Income Tax Act
is a condition precedent to the validity of any assessment order
to be passed under section 147 of the Act and when such a
notice is not issued and assessment made, such a defect cannot
be treated as cured under Section 292B of the Act. The Court
observed that this provision condones the invalidity which
arises merely by mistake, defect or omission in a notice, if in
substance and effect it is in conformity with or according to the
intent and purpose of this Act. Since no valid notice was served
on the assessee to reassess the income, all the consequent
proceedings were null and void and it was not a case of
irregularity. Therefore, Section 292B of the Act had no
application.”
6. In a case of amalgamation, the predecessor of the assessee (being a
dissolved company) “cannot be found”. Consequently, Section 170(2) of the
Act applies. This provision clarifies that where the predecessor cannot be
found,
“the assessment of the income of the previous year in which the
succession took place up to the date of the succession and of the
previous year preceding that year shall be made on the successor in
like manner and to the same extent as it would have been made on the
predecessor.”
(Emphasis Supplied)
7. The revenue, however, urges that the assessment is justified because the
liabilities of the amalgamating company accrue to the amalgamated
(transferee) company. While that is true, the question here is which entity
must the assessment be made on. The text of Section 170(2) makes it clear
that the assessment must be made on the successor (i.e., the amalgamated
company).
8. In Saraswati Industrial Syndicate (supra) it was held that:
ITA 441/2013 & connected matters Page 5
“after the amalgamation of the two companies the transferor
company ceased to have any entity and the amalgamated company
acquired a new status and it was not possible to treat the two
companies as partners or jointly liable in respect of their liabilities
and assets.”
In Vivid Marketing (supra), this court held:
“When the Assessing Officer passed the order of assessment against
the respondent company, it had already been dissolved and struck off
the register of the Registrar of companies u/s 560 of the Companies
Act. In these circumstances, the Tribunal rightly held that there could
not have been any assessment order passed against the company
which was not in existence as on that date in the eyes of law it had
already been dissolved.”
It was further held that Section 176 of the Act, which enacts provisions
relating to discontinuation of business, does not apply to a case of
amalgamation/dissolution. It was further held that Section 159 of the Act,
which provides for tax liability to be attached to the legal representatives of
a deceased person, is also inapplicable. The language of Section 159 ex-facie
applies to natural persons, and cannot be extended, through a legal fiction, to
the dissolution of companies.
9. There is another aspect in these appeals, which is the applicability of
Section 292B of the Act. Section 292B, inter alia , prescribes that
proceedings etc. initiated cannot be deemed invalid “merely by reason of
mistake, defect or omission” in any return of income, assessment or notice.
The revenue had argued that this provision neutralizes procedural defects in
jurisdiction. In these circumstances, it was submitted, having regard to the
assessee’s omission to urge the so-called illegality at the threshold, the Court
ITA 441/2013 & connected matters Page 6
ought to interfere with the order of the ITAT. This question, too, has been
dealt with - in CIT v. Dimension Apparels Pvt. Ltd. reported in (2015) 370
ITR 288. In that case, after noticing Section 292B, the Court discussed the
ruling in Spice Entertainment (supra), wherein it had been held that since the
assessment made in such cases is against an amalgamated company in
respect of income of the amalgamating company for the period prior to the
amalgamation, the income tax authorities are nevertheless under an
obligation to substitute the successor in place of the amalgamated company.
Thus, “such a defect cannot be treated as procedural defect” . In any event,
it is to be noted that the fact of amalgamation of the assessee with the
transferee company had been intimated and disclosed in response to the
notice under Section 153C on 22.11.2010. Accordingly, this ground, too, has
no merit and is rejected.
10. In the present case, no doubt there was participation during the course
of assessment; however, the AO, despite being told that the original
company was no longer in existence, did not take remedial measures and did
not transpose the transferee as the company which had to be assessed.
Instead, he resorted to a peculiar procedure of describing the original
assessee as the one in existence; the order also mentioned the transferee's
name below that of M/s Micra India Pvt. Ltd. Now, that did not lead to the
assessment being completed in the name of the transferee company.
According to the AO, M/s Micra India Pvt. Ltd. was still in existence.
Clearly, this was a case where the assessment was contrary to law, as having
being completed against a non-existent company. The ITAT's decision is, in
the circumstances, justified and warranted.
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11. For the above reasons it is held that these appeals do not involve any
substantial question of law and of liability. The appeals are accordingly
dismissed.
S. RAVINDRA BHAT
(JUDGE)
R.K.GAUBA
(JUDGE)
JANUARY 22, 2015
vld
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